Capital Gains Tax on Inherited Property in Australia

Inherited a home or property? You may be liable for Capital Gains Tax (CGT).

Here’s a simple guide to help you understand the basics of inheritance tax in Australia.

When do You Owe CGT on Inherited Property?

Inheriting property can be complicated. It may take several weeks or months to iron out all the legal filings and take control of the property.

For tax purposes though, the property is yours on the date of the previous owner’s passing.

So the amount of tax you might owe is based on the property value when the previous owner died. NOT when you took possession of the property.

CGT Exceptions

There are 2 exceptions to this rule:

• Pre 1985 Properties: If the property was acquired before 20 September 1985 (the date CGT was introduced in Australia), special rules may apply.
• Main Residence Exemption: If the property was the main home of the person who passed away, there are specific tax exemptions to consider.

The Main Residence Exemption

You can get the main residence exemption if:

1. The property was the main residence of the deceased person, or their current spouse, or someone with a right to live in the home according to the will, and
2. The property was not used to produce income (not rented out or used as business space), and
3. You (the beneficiary of the inheritance) sold the property within 2 years of the person’s death.

For Example

Imagine you inherited your parent’s main residence.

If you sell the home within two years of their death, you likely won’t have to pay CGT.

But, if you hold it for several years, you may need to pay CGT, depending on how you used the property during the holding period.

CGT Exemption Extensions

Since inheritances can be complicated, the 2 year rule can sometimes be extended.

Typically, extensions are only allowed if the will was contested, or there are other complexities with the estate.

What if the Deceased Wasn’t Living There?

The exemption usually only applies if the property was the main residence of the deceased owner. But there are a few exceptions.

For example, the deceased may have moved to a retirement village while keeping the home as their “main residence” for tax purposes. In this case, the exemption might still apply, even if the home was rented out.

The best long-term decision

An inheritance can be a difficult time. All the paperwork and legalities add to the roller coaster of emotions you’d already be feeling.

It’s easy to lose track of details like tax. But the expenses (or cost savings) can be significant.

How Do You Avoid Paying Tax on Inherited Property?

If you’ve inherited a home recently, or are expecting to inherit one in the next few months, it can help to consult an expert. We can offer a free initial consultation in this trying time to help you make the best possible long-term decisions.

Contact us if you’d like a consultation.